Farmland prices hit records

Market may slow from higher interest rates and fewer exports

Record farmland prices continue in Sangamon County, but agriculture observers say the rise may be slowing down.

The rising prices follow a nationwide trend driven by low interest rates and solid demand for crops, says John Hawkins, spokesman for the Illinois Farm Bureau. However, farmland prices may level out as interest rates rise, exports fall and profits on corn and soybeans get slimmer.

Hawkins says farmland prices grew steadily for 30 years, but the past five years have seen a faster rise in prices. In central Illinois, farmland routinely goes for $10,000 per acre or more, Hawkins says. The increase likely came from strong demand for corn and soybeans from Europe and China, while ethanol drove commodity prices higher domestically. However, those markets have now slowed, Hawkins says. And the prospect of a larger total harvest means less profit for individual farmers because commodities become cheaper, he said.

“We may be getting to point where we’re going to take a pause,” he said. “We’re supposed to have a good harvest this fall. If we have another good harvest next year, that could lessen farm income greatly, and that would probably throw cold water on land prices.”

Allen Entwistle has farmed land in the Springfield area for about 50 years. He says he recently saw a tract of land near Edinburg, southeast of Springfield, go for $16,800 per acre. The plots with the best soil and drainage get the highest prices, Entwistle says, while low grade “class c” land goes for far less, often being used for hunting instead of farming.

The high prices can be a hurdle for smaller operations or potential new farmers, Entwistle says, noting that it’s not uncommon to put more than a million dollars into a farm. That money often comes from a bank or a wealthy investor, who face big risks along with the farmer if the crop fails.

Still, the risk is well worth the reward for many farmers, as the U.S. Department of Agriculture estimates that 2013 will bring $128 billion in total profit for America’s farmers – more than double the $63 billion earned in 2009.

During the recession, farmland prices increased while other forms of real estate like commercial and residential tumbled, which Entwistle attributes to the land’s inherent value.

“A house depreciates unless you’re constantly spending money on it,” he said. “That ground is always worth whatever you pay for it because land is limited. They’re building new houses every day, but scientists haven’t figured out how to make more land.”